Good morning,
Monday saw a sea of green across the base metals amid 2nd ring 3rd Wednesday cash pricing and the last day of the official roll window. Normally you would expect “natural” flow to subside during the 2nd half of the month. But this morning’s moves on CME copper continues to remind us of the short stress that has been driving the arb and spreads moves there. Stop out.
Later today we have US PPI data with CPI tomorrow as well as retail sales. Of course, there will be the perfunctory chatter around the FED’s rates path.
Gold and especially cocoa a timely reminder that markets cannot go simply in a straight line. You have seen our data show potential exhaustive signs on zinc’s move above $3k. Whilst comex copper aggregate open interest is within touching distance of all time peaks. Not to mention today sees the first evidence of that well publicized Chinese smelter exports and deliveries on to LME. Ali, in contrast, just seeing metal white lined. Essentially off exchange deliveries being moved into official LME sheds on rent share deals by all accounts.
We are not bearish but are of the opinion that volatility is set to remain elevated. China sets its 1 year medium term lending rate tomorrow. Albeit Thursday’s release more crucial given IP, retail sales, FAI, property investment and jobless data as well as home prices.
As to the real money flows that have been driving our prices higher in the past few months we note:
Nvidia has seen much investment as the world bets on AI. It has a market cap of something like $2.26 trillion. Rallying 80% or so this year. Say 1% of that total was going to come into our space as investors look for exposure to those commodities which should benefit from AI and green revolution you are looking at $22.6 billion. The point being that the flows that are coming in from that outside money is something that most in our space are having difficulty in comprehending.
Looking at platinum see how that was trading in low $900s last week with a managed future on CFTC running a net short. That price rallying hard on the back of that covering. ICE vehicle cat demand as the west is slower to adopt EVs than previously anticipated. Moreover you have demand coming in from green sector and infrastructure development.
See today’s Quatar economic forum whose major focus is on investing for the next generation with AI, data centres and their power needs to the fore.
Price performance at cob 13th May 2024:
Ali
- Has been the underperformer this week and is the only metal to be trading in the red month to date. At last night’s close down 1.9% mtd.
- It having been negatively impacted by the producer offer which sits above $2600 as well as the fact it has no immediate supply issues that the likes of copper has encountered.
- Not to mention this week’s substantial stock builds on LME. Although we comment that this is metal that was sitting in non LME listed warehouses and which has essentially been white lined to benefit from a LME rent share.
- But downstream demand is showing signs of life. And lest we forget ali is the most energy intensive in terms of its production. It is likely going to be facing a battle for those supplies over the coming years. Power issues likely to remain an issue over the coming years.
- Light turnover – running down 30% compared to 20d average.
- Another 146.4kt stock inflows coming into LME warehouse. The on-warrant stocks are now at the highest since July 2021. Latest inflow was driven by deliveries in Port Klang, Malaysia. In contrast, SHFE and COMEX inventory remained largely unchanged.
- LME ali seeing light long liquidation into Friday’s close with the net combined reading seeing a minimal positive demand reading.
- Shanghai aggregate open interest down 1.7k lots or 0.3%. Minimal changes really.
- On a 3 x ali : 1 x copper basis that switch has moved from $1783.50 at close on 16th April to $2568 this morning.
- But looking at the pure ratio chart that having reached levels not seen since June 2021. North of 4.000 this morning.
- In February 2021 the peak was 4.2130. That was amid the sharp copper rally away from $4371 low in March 2020 to the $10,747.50 peak in May 2021.
- Ratio currently moving into upper Bollinger bands on daily and monthly. On the weekly it is breaching.
- Potential argument to buy ali / sell copper albeit comes with a health risk basis the way copper is behaving.
- See how that switch on a 1:1 basis is into its upper Bollinger band on its daily and weekly (not on its monthly)
- That switch out to $444.50 from $161.5 zinc over on the 22nd April close. Last night having settled at $455.50 and the highest close since April 2023.
- Attach weekly to show the price running into the 100 week ma which comes in at $446 and which price has been below since March 2023.
- The danger of course is that we know producer selling sits above $2600 on ali. But you look at the nanolytics and the heavy zinc demand bars yday presenting potential for it having been an exhaustive move to the topside…
- Support into $2490/2500.
- Resistance into $2575/85.
Copper
- Overnight COMEX Jul/Sep get bid again and COMEX July arb also going bid.
- July Sep comex copper out to a high of $7.45b this morning from a settle of $2.55b last night.
- Here is your best indicator of the comex copper market facing current supply constraints.
- Comex Copper aggregate open interest approaching record peak. Last shows 317k lots to be confirmed this afternoon.
- Highest total since it peaked at 318k lots on 25th July 2018. Albeit all time peak was 338kt in August 2017.
- Decent turnover this morning – running up 21% compared to 20d average with a $110 intraday range traded.
- The best way to chart the LME / CME arb appears to be to plot LME 3s against the relevant comex contract.
- This morning the July comex premium to the LME 3s reaching a fresh peak of $396.
- So basis the commentary on Friday about it having reached an all time peak we point you to Dec 2005 contract when the comex premium to the LME peaked at $572 over.
- Whilst that was achieved into prompt (December 2005) so as the market got into delivery and most specs would have been absent – what this shows as is happening currently. There is a supply squeeze going on in the USA. Panama canal, lower prodn – all lthis.
- And we gather the following : most metal sitting in LME sheds currently is Russian so that cannot be shipped. And secondly Chinese brands are not eligible either for comex delivery.
- So outside any non Russian LME material, this situation is relying on fresh LATAM prodn.
- So we of the opinion that deliveries might not be forthcoming until July.
- See attached chart of that Dec 2005 action.
- See Yangshan premium dropped to -$5 today, which a record low level.
- And the LME/SHFE arb widen up further today, which still suggesting sell LME/buy SHFE.
- Shanghai May June spread offer to 270 contango, easing from 140 contango on 10th May.
- LME copper is a big long and largely unchanged. The net combined reading stayed in the positive territory for the 3rd consec session.
- Shanghai aggregate open interest up 14.3k lots or 2.3%, up for the 3rd consec session to 625.6k. The recent high was on 29th April at 627.8k lots. Fresh length.
- Both Shanghai and LME on warrant stocks seeing further build up whilsr COMEX copper stock dropped to 21.3kt from the peak on 12th March 2024 at 31.1kt.
- LME stock builds likely some of those Chinese smelter deliveries that have been mooted (even though we think 100kt is too rich).
- Next major resistance comes in around $10,500 then the all time peak of $10,845.
- Support into $10k area now.
Nickel
- Light turnover this morning – running down 32% compared to 20d average with a slim intraday range at $185.
- Stock deliveries continue on both exchanges.
- Short covering continues on LME and nearly back to flat. Its net combined reading still in the positive territory with a stronger demand reading.
- Shanghai aggregate open interest up 4.4k lots or 2.0% after 3 consec sessions’ decline.
- LME on warrant stocks continues to build and the current level reach to he highest level since November 2021. In contract, SHFE warrant stocks have been largely unchanged.
- LME nickel prices have been ignoring the downward pressure from onshore stainless prices. See how the onshore stainless steel prices get sold off this week but LME nickel prices still hold well.
- Likewise the onshore stainless pries, onshore renewable energy equity have been under pressure of late which also brought some downward pressure.
- Then onshore nickel sulfate price hold around 29500-30000 yuan/ton which remained strong and yday’s report has showed you that onshore nickel pig iron prices increased to 985 yuan/ton. The recent improved feedstock prices support LME nickel prices.
- Shanghai May June spread settled at 810 contango, easing from the recent peak on 13th May at 280 contango.
- Support into 21 day ma at $18,919. Then $18,540 and the 38.2% retrace and lows from May.
- Resistance into $19,375-500. Down trend and high from 7th May.
Zinc
- We continue to see zinc’s length get cut on LME since reaching the peak on 3rd May. But yday’s net combined reading registered the strongest demand reading since 29th September 2023 where price made a peak that day but collapsed day after. When you look at that it presents the argument that yday was an exhaustive move to the topside.
- $3k such a key psychological level akin to $10k in copper. And price has been encountering evidence of some producer interest.
- Shanghai aggregate open interest down 2.1k lots or 0.9% for the 2nd consec session.
- LME zinc prices followed the ferrous movement initially, edged lower but manage to bounce back slightly.
- LME on warrant stocks seeing stock draws, declined to 203kt from the high on 28th March at 227kt. In contrast, SHFE on warrant stocks continued to increase, and now reached the highest level since August 2022.
- Shanghai May June spread offered to 150 contango today, the widest level since July 2023.
- Next resistance into $3150 area and highs from Feb/March 2023.
- Support into 21 day ma at $2875.
Lead
- LME lead’s length largely unchanged and the net combined reading remained in the positive territory with a stronger demand reading.
- Shanghai aggregate open interest up 2.0k lots or 1.6% for the 2nd consec session. Approaching to the previous highest level since 4th December 2023 at 125.5k lots.
- Shanghai on warrant stocks and LME warrant stocks seeing stock build up. The restocking momentum on SHFE is much quicker than LME.
- LME cash to 3s spread traded into $51.77 contango yday, easing from the peak on 19th April at $28.36 contango.
- Resistance into this $2250 area. Big area into $2300.
- Support into 21 day ma at $2205.
Macro
- 13:30hrs PPIs
LME Stocks
Shanghai On Warrant Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
